Good morning. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold Corporation 2016 year-end and Q4 Financial and Operational Results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Paul Wright, President and CEO, you may begin your conference.
All right. Thank you, operator, and good morning and welcome to our fourth quarter and year-end 2016 financial and operating results call. I'm here this morning in Vancouver with Paul Skayman, Chief Operating Officer, Fabiana Chubbs, Chief Financial Officer, Krista Muir, our Vice President of Investor Relations, and my soon-to-be successor, George Burns, whose dulcet tones you will listen to in April. As always, we have provided detailed financial and operational information in the press release from yesterday evening. Before I begin, I need to remind you that any projections and objectives included in our discussion today are likely to involve risks which are detailed in our 2015 AIF and the forward-looking statement disclaimer at the end of the news release. As always, we will try to make this a brief call.
Paul and Fabby will review the operations and financial results, while I want to touch briefly on the strategic objectives we achieved during the year and what we expect in this upcoming year of 2017. First off, on a safety note, I would like to extend my congratulations to all of our teams as the company continued in 2016 to improve the overall safety record with a reduction in the lost time injury frequency rate for the fifth consecutive year. Through a global commitment to leadership training, identification, management and mitigation of risks, being prepared for incidents and learning from them, we are succeeding at making our working places safer. On to the year review. 2016 was a transitional year for the company as we set out with specific targets and goals, and I'm happy to say that we delivered.
Including the discontinued Chinese operations, we finished the year having produced just over 486,000 ounces of gold at cash costs of $579 per ounce. The all-in sustaining cash cost averaged $900 per ounce, which was considerably lower than the initial 2016 guidance of $940-$980. Progress continued at our Skouries and Olympias projects in Greece. We continued to advance our development projects in Romania and Brazil. Our exploration team demonstrated success in their early-stage projects with a goal of complementing our internal growth pipeline. The team delivered on the sales of our Chinese assets, a long and, dare I say, arduous process.
With these sales, we ended the year with total liquidity of approximately $1.1 billion, which includes $888 million in cash equivalents, and term deposits, and $250 million in undrawn lines of credit. Throughout the year, underground mine development and access rehabilitation continued at Olympias. The team now is putting the finishing touches on phase two and is nearly complete as we move forward with the startup of commissioning this quarter. We expect Olympias to be in full production by the third quarter and is expected to produce 40,000-50,000 ounces of gold at cash cost between $250 and $450 an ounce, depending on the base metal credit level.
Skouries had a tough start to 2016, when after delays in the permitting process, we decided to move to a temporary suspension on the construction works. We ramped back up with development halfway through the year after the receipt of the necessary permits to recommence. Through the suspension period, we used the opportunity to take a better look at our engineering plans. We've made some significant changes to the mine plan sequencing and now are moving forward with the engineering to change to a dry stack tailings concept. These decisions will facilitate early mining of the higher value underground ore and greatly reduce the overall environmental impact on the footprint of the project.
We also believe we are making progress with the new Minister of Energy and Environment, and as I've said before, we are in need of cooperative and willing government who chooses to work with us and all of our stakeholders over the long lives of these significant assets. It is indeed a slower process than we would have liked, but it is headed in the right direction. In Turkey, while there were many news headlines throughout 2016, we experienced no disruptions in our two mines in the country. Late in the year at Kışladağ, we made the decision to maximize near and medium-term profitability and re-engineer the 13 million ton per annum pit, rather than deploying additional expansion and significant sustaining capital to move to the 20 million ton per annum scenario.
The revised operating plan greatly enhances free cash flow from the operation in the near and medium term while maintaining the long-term operating integrity of this asset. In exploration throughout the year, we drilled over 50,000 meters at 16 greenfields, brownfields, and in-mine programs. The results from the program have well-defined our exploration plans for 2017. In Serbia, positive results from the drill testing of Copper Canyon and the Shanac zones led to the 100% acquisition of the KMC project. In Brazil, we acquired an option covering over 3,000 square kilometers of prospective greenstone belts at the Borborema and Nazareno projects and commenced drill testing of several target areas. In Romania, we received the exploration license for the Bolcana Project in the Certej District. We have committed to over 25,000 meters of drilling at Bolcana, through which we plan to define the large porphyry system.
In addition, we recently reached the first two drill stations in our new Hanging Wall Exploration drift development at Stratoni in Greece. Drilling will commence shortly in our initial three-year program of exploration and resource definition drilling of the previously untested down-dip and along strike extensions of the ore body. Our exploration budget for 2017 has increased to $35 million and includes plans for over 80,000 meters of drilling. I strongly believe that Eldorado is now set for the next phase of our company's growth. We are well positioned to focus on and build our internal pipeline of quality assets. We have the cash balance to internally fund our capital growth plans, and we have the right team in place to execute. Just before I turn over to Paul and Fabiana, I would like to take this opportunity to welcome George Burns to the Eldorado team.
The official handover of the President and CEO titles is set to occur on our April 27th annual general meeting, but George has been in the office for a few weeks now and is fully engaged with all the different areas of the organization, and we are gearing up to get on the road to meet many of you in the coming weeks, and to spend some time at our operations in the various countries. I will be moving to the role of Vice Chairman in April and look forward to supporting George from that role. That's it for me. Over to Paul.
Thanks, Paul. Morning, everyone. Starting off with Turkey, Kışladağ produced 59,000 ounces of gold, which is under our expectations for the quarter. Overall, though, we managed to produce 211,000 ounces, with just below our annual guidance of 225,000 ounces. Generally, we were not as successful in drawing down the pad inventory as we predicted in Q4 last year with the commissioning of the new leach trains, even though we did reduce the inventory somewhat during the quarter. Inventory levels at the end of January sit at approximately 70,000 ounces. Tons of ore mined and placed on pad were both over budget, with a small amount of run-of-mine material placed on pad in the last quarter. The year-to-date strip ratio for Kışladağ was only 0.92:1, which was slightly below our budget of 1:1.
We rounded the year out with 16.2 million tons of material mined and 13.1 of that placed through the crusher, with the rest being placed on the pad as run-of-mine material. I think the key item in the press release is the reduction of reserves from Kışladağ. I would like to remind people that when we commenced operations in 2006, it was with a reserve of 5.06 million ounces and 135 million tons of ore. At the end of 2016, we'd mined 4.2 million ounces and 129 million tons. In the last 10 years, we've mined 83% of the gold and 96% of the ore. We still have 5.3 million ounces and 217 million tons and an expected mine life of 17 years at this 13 million tons per annum mine plan, which is still slightly more than the reserve when we commenced operations.
We designed the new 13 million ton per annum pit to maximize profitability at Kışladağ, given the projects that we're working on elsewhere have, in our view, some significant capital requirements, and ensuring that Kışladağ continues to provide the required cash flow throughout this project build cycle. To that end, the reserve is increased in grade by around 7% to 0.75 grams per ton. The ore body itself is reactive to both gold price, operating costs, and technological advances. All of these will potentially play a part in future changes to reserves, and we haven't yet sterilized any of the material that was taken out of this reserve in terms of ability to increase the pit size at higher gold prices at some point in the future.
I'd like to draw your attention to the fact the resource is virtually unchanged, and we have converted much of the probable to proven during 2016. The resource currently stands at 9.45 million ounces from last year's 9.6 million ounces, and reserves are drawn from that resource pool. In terms of the current phase of mining, we're capable of extracting approximately 100 million tons from this ore body without increasing the strip ratio above 1:1, which gives us approximately seven years of current throughput rates. Overall, the strip ratio for the total reserve is around 1.35:1. Sustaining capital over the next four years is expected at around $30 million per year. Recovery numbers that we're now using are based on the latest metallurgical test work that only became available late in 2016.
When we first completed the feasibility study in 2005, the recoveries were based on oxidation state only, and we were using 80% for oxide and 60% for sulfide. It became obvious in work completed from 2010 to 2015 that these recoveries were not high enough, as if we'd persevered with these numbers, the inventory levels in the pad would have been negative. Therefore, we completed a number of column tests on various alteration types and lithologies and broke the recoveries down to the individual ore types. During this period, we had an average recovery from sulfide ore of 65%. As we continue to mine underneath the water table and continue to refine the model, we've identified some bad actors in the ore types, and in some cases have significantly reduced their expected recoveries.
This has allowed us to concentrate on the high recovery materials and not place material that would potentially not be profitable on the pad at all. Overall, though, we're just over the initial feasibility expected sulfide recovery of 61% for sulfide.
As we're now below the water table, the amount of oxides left in the ore body is very low, estimated at around 1% of the reserve. Moving on from Kışladağ, Efemçukuru turned in another solid quarter and year with tonnage mined and processed both over budget and the ounce production in line with our initial 2016 guidance of 90,000-100,000 ounces at $550-$600 per ounce. We actually completed the year at 98,364, an average cash cost of $514. We're looking forward to a similar year in 2017 from the team at Efemçukuru. As you're all aware, we completed the sale of our Chinese operations during the latter part of 2016, so I won't comment on those. On the development side, work continues on the Olympias phase two construction.
Despite a rough January from a weather standpoint, we continue to guide startup of commissioning in Q1 2017 and looking forward to getting Olympias into production. All of the mechanical equipment's now in place, and we're completing electrical and pipe work on certain sections of the plant. At Skouries, also a slow start to 2017 with significant snowfall over the site. Things are starting to improve now, though, and work's moving forward with earthworks and some site steel work and equipment erection. At Tocantinzinho, we continue to work through the permit process, concentrating on the Installation License in Brazil, as well as completing basic engineering in Vancouver. With that, I'll turn it over to Fabby.
Thank you, Paul, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. We ended the year with cash equivalents, and term deposit balance of $883 million, compared to $288 million at the end of 2015. The increase in cash balance is mainly the result of proceeds from the sale of assets of $793 million, $104 million generated by continuing operations before changes in working capital, and $298 million usage of cash for capital programs. During the year, we completed the sale of our Chinese assets for net proceeds of $882 million. This resulted in a decrease of $1.3 billion in property, plant, and equipment, a $50 million decrease in goodwill, and a $255 million decrease in our total liabilities.
On the income statement, the result of the Chinese operation is shown in a single line as discontinued operations included a $351 million loss on sale of these assets. Net loss attributable to shareholders of the company was $344 million or $0.48 per share, compared to a loss of $1.5 billion or $2.15 per share in 2015. Excluding the loss on the sale of our Chinese assets and related transaction costs of $364 million and excluding unrealized losses of $17 million, we reported adjusted net earnings for the year of $47 million or $0.07 per share, compared to earnings of $13 million or $0.02 per share in 2015. Gross profits from continued operations for the year of $163 million increased 30% year-over-year, as the impact of lower sales volumes were offset by higher gold prices and lower operating costs.
Gross profit from discontinued operation for the year was $53 million. Those are my comments on the financial statements. I will turn the call back to Paul.
Oh, thank you, Fabby. Thank you, Paul. The operator will hand over questions now, please.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andrew Quail from Goldman Sachs. Your line is open.
Good morning, Paul and team. Thanks for the update. Just a couple of questions on Kışladağ. Just with the expansion being deferred now, can you guys just sort of walk us through how much that was gold price driven, Paul, versus, I suppose, capital allocation to other assets, like obviously Skouries. Looking now at my screen, gold's just flown through $1,250, and you guys probably would've been doing more of this planning at much lower gold prices. If we hold these levels, is this something that mid-year, we could get an update that this expansion's back on the table?
I don't think $1,250 will cut it, Andrew, to be honest. Look, if you go back in the history of the expansion, the expansion was sort of mooted and engineered back in the days of gold price being at $1,700 an ounce. When we looked at how the company was gonna go move forward at that point in time and how we were going to finance the projects going forward, which led us to obviously the bond facility and the revolver, sort of our downside was $1,500. As gold went down lower and lower, yes, the expansion still worked at $1,300.
when you took a hard look at the cash flow generating capacity at $1,300 in the short to medium term, compared to just continuing where we are, there was really not a lot of value to be gained associated with putting a significant additional capital at risk. In our view, and maybe we'll be proven wrong at the end of last year, is that we were more likely to be over the next, call it two to four years, in a relatively depressed gold price environment, relatively speaking, and fairly volatile. Although we had
Still have, obviously, an exceptionally strong balance sheet. It was important to us having disposed of the Chinese assets, to have the financial security to be able to rebuild the production base off that balance sheet. To do so, certainly, I felt very strongly, as did the board, that it was essential that we had the two remaining operations clearly on paths that would see them delivering strong cash flow in a price deck that would be scalloped somewhere in the $1,100-$1,300 range. That was the rationale behind it, which would ensure that we would have, in terms of cash flow as well as cash on the balance sheet, sufficient funds to move forward to diversify the production base of the company over the next couple of years.
I think, personally, my view, gold at $1,200, $1,250, projected for the next three or four years isn't likely to change our views on reactivating the expansion. What would it take? Personally, I think you're probably taking a view of closer to $1,400 in longer term, before you would sort of say, yes, it's worth putting this additional work, the dollars to work. Again, you're going to do that in the context of what are the other alternatives for capital allocation inside the company? Simply put, expanding to the 20 million tons a year throughput, although it didn't cost a lot in terms of residual capital, it put us very quickly into a mode of very high sustaining capital.
Yeah.
We just really weren't generating much in the way of free cash flow over the next couple of years.
Got it. I suppose moving on with some of the opportunities you do have internally, something like TZ. Is there something in your mind that you want to get to, whether it be about reserves and resources, about size, until you guys find. Obviously, all economics, but personally, do you think there's some sort of size component to actually committing to the project?
Size in terms of ounce per annum, or?
Yeah. No, it's in terms of.
Potential reserves?
total ounces before you guys. It's obviously a greenfield project. There's not much infrastructure. Before you actually really start to commit to the project, is there a total number of ounces that you have in your head that you want to get to?
No, look, I think the project, as configured, delivering whatever it is, around 150.
170,000.
Yeah, 150,000-170,000 ounces is a reasonable size of project. I think as a company, given our overall sort of objectives in terms of the size of the company we're building, the size of mines we're comfortable operating, well, that would certainly satisfy the criteria. There's a lot of other considerations, however, that go into whether or not, or if we make the construction decision on TZ. It's certainly, I would say the production rate box has been already ticked on that project.
No. I suppose it's more about the reserve, or the resource. If you've got the rate, but do you want to see 10 years of reserve?
Yeah, look, it's a bit on the light side right now.
Yeah.
Andrew, it's a bit of a chicken and egg situation here. You'd like to have a longer lived mine than what we have right now, which is, whatever it is, a 10-year mine or thereabouts.
Mm-hmm.
You'd like to frankly see that closer to 15 years. It'd make, I think, everybody feel more comfortable.
Mm-hmm.
The reserve, the pit that hosts the reserves is drilled off. We're in this sort of situation where although the district is prospective, there is no immediate targets for us in the near term to change that reserve. There's nothing out there obvious that we can go out and drill off, which will give us another half a million ounces of reserves. We have, over the years, cut back significantly on exploration. Doing exploration in that part of the world is an expensive business due to access, due to infrastructure, due to jungle, all of these things. It's difficult to understandably motivate our team when they look at how we allocate monies to different jurisdictions where we have, frankly, we can get better bang for our buck elsewhere. Now, all of that changes, of course, if you actually make a decision to invest in a mine.
The access improves, the infrastructure improves, and the cost of doing exploration diminishes. Dare I say, the motivation to find more ore increases.
The threshold drops as well.
Exactly
the subsequent deposits.
Yeah. It's a bit of a chicken and egg situation. I'm not sure that there's anything that we can look to-
Yeah
In the short term that's going to enhance the reserve life.
Cool.
I think fundamentally, there's enough smoke around the situation to support our thesis that the Tapajos and that trend is prospective. There's no lack of mineralization in the trend.
Right. Got it. All right. I'll leave it there. Thanks. If this is your last conference call, thanks, Paul, for all your hard work over the years. Stay in touch.
Okay. Likewise. Thanks, Andrew.
Your next question comes from the line of Steven Butler from GMP Securities. Your line is open.
Good morning, Paul et al. and Pauls. Congrats, Paul, to you, and welcome as well to George in his new role. The question for you on Olympias, Paul Skayman, I guess, on the new Kokkinolakkas tailings management facility. Is that a bottleneck at all, Paul, with respect to startup of the mill? The mining, you said, starts up in the first quarter, and I assume the mill will do the same, but the full facility is expected to commission by about middle of the year. How do you manage the ore in the process?
No. I guess I talk about the mine as the mine and the mill. We'll be putting ore through end of the first quarter, basically. To be honest, Steve, most of the material actually goes back underground as backfill. There's a very small component that might head over to the Kokkinolakkas, because we don't see that as. We continue to work on it, but we're well advanced in terms of where we need to be if we do place material in that facility. No, it's certainly not an issue for us in terms of starting up Olympias.
Okay. Paul, you had mentioned the sustaining capital significantly higher or fair bit higher on an expanded. I think you talked enough to beat this thing to a pulp in terms of discussion as to why not to proceed, but at the 29 ton per year pit, what was the sustaining capital running through your models?
At Kışladağ? Yeah.
I'm sorry, Kışladağ.
Under the expanded case?
Yes.
Yeah, I'd need to go and double check. I'd be guessing up around the $100 million mark for that short term. I'd need to double check, though.
Okay. Thanks very much.
Over the life of mine, it was like $900 million, wasn't it? Yeah.
Obviously, pretty heavily front-loaded. There's a fair bit of waste stripping to get access to more material and pad construction and rock waste dump construction as well.
Okay. Thanks, guys. Thank you.
Your next question comes from the line of John Bridges from JP Morgan. Your line is open.
Good morning, everybody. No question, but just wanted to congratulate you, Paul, and welcome you, George, to the business. It's just been very impressive what you've achieved over the years. Paul, in particular, your determination just to stay with the high road in terms of what you invest in. Congratulations and best of luck in keeping George under control.
I'm hoping that won't be too much of a challenge. No, thank you very much, John.
I will tell.
Yeah. No, thanks for the call. Thank you very much.
You're welcome. Thanks, bye.
Thanks for all the support over the years. Yeah.
Your next question comes from the line of Dan Rollins from RBC Capital Markets. Your line is open.
Thanks very much. I appreciate it if you've already mentioned this, but I got on the call late, so I hate to do that. I was wondering if you might be able to provide a little bit more commentary around the reduction of the Kışladağ reserves beyond what was outlined in the September investor day, but more specifically on the impact of different recovery factors on the differing metallurgy there and the ore types, and if that has any impact on the existing life of mine recoveries for the existing reserves.
Yeah, I did talk about reserves earlier. The overall recoveries have moved, for sulfide material as a group, have moved from about 65% down to just over 60%, which is back where we were from a feasibility standpoint. Overall, in terms of adjustment to year-on-year P&P, the recovery accounted for around 25% of that.
Okay.
Obviously, as you'll appreciate, everything's sort of interlinked. It's a little tricky to look at any of these in isolation because they obviously have an effect on other components.
Just to get a handle on potentially the optionality remaining in that large resource base, and noting Paul's comments that it's really about ensuring strong free cash flow from the existing assets while the new real value drivers of the company are developed. Is there a period in time in years where you basically, once we pass like 3, 4 years, that it's really impossible to go back to that phase for expansion and you're really just sort of now living with what you have in the current reserve base?
Excuse me. No, you're not losing that optionality. I guess some of the initial thinking behind the expansion now was the sort of sweet spot in terms of grade over the next couple of years. You could certainly go back and do that expansion. You would need to put some money into it.
The strike price on that option gets a lot higher as the years go by.
I'm not sure I'm following that.
Okay. Well, the cost of pulling the option on expansion as you go through the next couple of years gets higher because you're basically taking out more of the sweetness of the ore body, plus potentially you could have a greater strip ratio going down the road. It really becomes a call on the gold price and other opportunities within the company.
Because, yeah. What you just said is what we've already said, Dan. Absolutely.
Okay. I'm just trying to find out if there is an optionality, because there's a large resource base that technically there could be value for, but if it's not really capable of being produced or.
I think, look, I mean the.
Basically extracted, it loses value.
No, no. We could have stated all of this as a reserve. All right? This is about, it's a horrible thing to have to highlight in a conference call. It's about actually making money, right?
Sure.
This asset historically has made a lot of money for this corporation. I mean, internal rate of return for this project since inception is well through 45%. We've always operated this mine to make money, and that's what we're doing here as well, while maintaining the ability to be able to subsequently expand if metal prices and the conditions of the corporation allow that. That's what we're focused on. All right?
Perfect. I'm just trying to figure out if there's a period where that gets exhausted, but obviously it's fairly open-ended from your viewpoint right now.
Yeah. The mine started with 5 million ounces of reserves. We've still got 5 million ounces of reserves, and we've been operating for 12 or 13 years.
Yeah, I understand about the past of the asset. I'm just trying to get a feel for the optionality.
The past is relevant to the extent that, again, we've always used this asset to make money.
Perfect.
That's what we're doing.
Just on going to Greece, obviously we've seen a lot of changes there politically. It sounds like the tensions that were there about a year ago have really waned, and you're starting to make a lot of headway. Are there any key permits that are remaining for Olympias to get going? And then maybe if you could talk on how the relationship between the company in Greece and the management in Greece are now interacting with the government there.
This is going to be a lengthy call, is it, Dan? Look, in terms of key permits to get started, there aren't any at Olympias. There is a permit related to the paste backfill plant.
Well, there'll be an operating permit.
Operating.
You can't even start with that until people can actually review safety and fire risk and those sorts of things. We don't anticipate an issue there necessarily.
Look, it is still a challenging environment, Dan. The situation has evolved. The relationship with the government has improved. The endorsement of the project now is frankly throughout the broader Greek society. The majority of Greek society, never mind the local region, are supportive of the investment. It's become clear, obviously, through the lifespan of this government to date, that what the country needs is aligned with what we're providing. It's been slow progress, but yet there are still elements within, frankly, the government and there are still elements within the society, albeit small, that are opposed to privatization, or opposed to development, and are opposed to mining. We are prevailing. The projects are getting built. The evidence will be in front of everybody as it relates to Olympias, in the second quarter as you start seeing production and cash flow.
That's perfect. Just wanted to confirm that the direction that we've seen over the last year is continuing, and it's baby steps, but it's really good to see that continuing, so I appreciate it and thanks very much for the clarity on the call.
You're welcome.
Your next question comes from the line of Kerry Smith from Haywood Securities. Your line is open.
Thanks, operator. Paul Skayman, is there much run-of-mine material left at Kışladağ then in the mine plan, or is it basically going to be all crushed and put on the pad?
It's pretty well all to be crushed now, Kerry. With that slightly higher grade material, we get more value out of it by putting it through the crusher. There's no plans to put more run-of-mine on the pad.
Okay.
At this stage, but yeah.
Right. For Skouries, you talk about this permit amendment to go from paste to dry stack tailings. Does that need a permit amendment or how does that work in terms of getting the approvals to do that? Or do you already have those approvals?
We will submit, and we've already had preliminary discussions with the Ministry of Environment as it relates to the proposed change. To be frank, I don't think we are sure what it will constitute in terms of amendment, but there will be an amendment. The move from paste backfill to dry stack tailings is obviously, and as recognized by the civil servants, beneficial on all fronts, in terms of surface impact, in terms of stability, in terms of the flexibility it gives within the mine plan. It is a change, and we'll have to work through that change with the civil servant.
Okay. Paul, I guess you're not expecting that would impact the time, the schedule then, as it were.
We don't see that at present, no.
Okay. Just on Olympias, on the CapEx, when we had the Analyst Day last September, at the time, somebody said that there was, I think it was $101 million left to spend to complete the CapEx for phase two Olympias. In the back half of last year, you spent about $80 million, if I calculate the numbers right. That leaves about $20 million left to spend based on that old number. Is that project still on schedule for that CapEx spend? Because you talk about $85 million this year, but if I did the numbers, it looks like there's only $20 million left for the phase two, but I guess there's other numbers.
Well, yeah. That $85, the budget for this year includes other Kokkinolakkas construction and-
Phase three.
Yeah, a little bit more underground development, et cetera.
It's not apples and apples, Carey.
Right. I guess, is that old $101 million budget to complete phase one still roughly on schedule and on budget?
Yeah, I think so. We've pretty well stuck to the budget in terms of what we've done for phase two generally. I don't think we're too far off the mark.
Okay. Just on the dividend that you declared, I'm trying to read the language there. Is that meant to be a one-time dividend? You used to pay a semi-annual dividend, and how are you portraying this $0.02 dividend?
Well, this is simply a reflection of the performance of the corporation, our dividend policy that was stated in 2010 and then revamped in 2011, and the metal price environment that we experienced in the year. We went through a period of a year where we didn't pay a dividend that was largely driven by metal price being below the level inside of our policy.
Okay. If gold were to stay.
Let's put it this way, Kerry. It's not unreasonable to assume that there will continue to be a dividend as long as gold price averages over $1,250. As always, these things are at the directors' discretion.
Right. Okay. That's what I was going to basically ask. Okay. And just the last question, if I could on this. In Serbia, you've got this Shanac skarn that you mentioned on the exploration side. You say it was gold rich. How big is the skarn? Do you even know? And when you say gold rich, what does that mean? Is that like half a gram, a gram? I don't know. I'm just trying to get a sense for how important this could be.
Gold rich rather than copper rich would be my comment. Look, I think we're very pleased with our entry into Serbia to the extent that we very quickly were able to move into a fairly, what we think is a fairly prospective part of Serbia, gain access, gain licenses, get a drill program going, identify a number of drill targets, start to test these targets and hit mineralization, which, frankly, I don't think anybody's under illusions here is economic, but it's interesting, it's relevant, and it's a good start to our commitment to do exploration in Serbia. Relating to the specific drilling program that you're talking about, we've tested an area roughly 400 by 400 so far. That's 400 meters by 400 meters.
Right. Okay. Now that's helpful, Paul. I appreciate that. Thank you.
Your next question comes from the line of Anita Soni from Credit Suisse. Your line is open.
Hi, good morning, guys. Actually all of my questions have been asked. I would just leave it to congratulating Paul on your new role and welcoming George to his role as CEO. I'll leave it at that.
Thanks, Anita.
Your next question comes from the line of John Tumazos from John Tumazos Research. Your line is open.
Thank you very much. Congratulations on the sale of the assets in China. Do you think that you might sell other baskets of assets, to simplify the company and raise money? You don't seem to get credit for the full breadth of your efforts. Maybe the market worries that you make a lot of money in Turkey and spend it somewhere else. Certainly simplicity can be a virtue too.
Yeah. Look, we don't have any immediate plans to divest of any assets. Part of obviously how we run our business includes both acquisition development and consideration of divestment. I wouldn't say at this stage there's any plans in the near to medium term to divest assets.
Thank you.
Your next question comes from the line of Tanya Jakusconek from Scotiabank. Your line is open.
Hi, good morning, everybody. Just a question for Paul Skayman, if we can, and sorry, Paul, to come back to Kışladağ. One of the statements that you made with respect to Kışladağ was in maximizing cash flow for the asset. Can you talk a little bit about some of the cost savings and the benefits that you see under this 30 million ton pit? You mentioned obviously, the savings in sustaining capital, so thank you for that $30 million from $100 million. Is there any other things that you can put some more color to that will help us to understand?
I don't know that it's so much sort of cost savings. I think it's more sort of improvement in terms of generating free cash flow in that medium term. The material, we're obviously mining a slightly smaller pit, but it's got better grades. Putting 30 million tons on it, that better grade will generate more ounces and obviously lower costs for that material. The other benefit when comparing it to the 20 million ton, obviously, is that deferral in sort of requirements for waste stripping and pad construction, et cetera.
Yeah. No, that was appreciated. It's just also that I think the strip ratio goes up from 1-1.35 from the previous pit.
Yeah, the prior reserve had it at over 1.4. What it does allow us to do is sort of mine within that at a consistently lower strip ratio, for a reasonable period of time. The overall strip ratio compared to prior reserve has reduced as well.
Would it be fair to say that it's a combination then, first, obviously of the better grade up front? Clearly, you mentioned the sustaining capital up front is lower, and obviously the lower strip up front. All of this up front maximizes the cash flow over the life of mine. Would that be a fair statement?
Yeah. Simplistically, Tanya, what was happening is that the expanded case, and which obviously provided more gold, provided more gold at a higher operating cost and a significantly higher all-in sustaining cost. When you broke it down into increments, your additional ounces that you produced were very low margin ounces at the price deck that we've assumed over the next few years.
Okay.
Our price deck, just to remind you, our assumption for this year is $1,150, $1,200 for next year, $1,250 for the year after, and $1,300. All right?
We've run all the reserves at 1,200 life of mine.
Exactly, reserves are 1,200.
I would
Now that price deck, to put a very large amount of sustaining capital in the next couple of years was essentially eliminating most of the free cash flow from the operation over the next couple of years.
Yeah.
Albeit it would allow us to state a larger reserve.
Yeah
That reserve really wasn't contributing much in the way of free cash flow.
Yeah.
I guess, again, keep repeating myself, we've always run our mines to make money rather than just simply to have reserve-
Yeah
... be able to long-term mine plans, right?
I would've assumed that those reserves would've been at the end of the mine life?
Yeah. We've removed tons that were a fair bit lower grade and needed more stripping to do.
Yeah. That would make sense. Yeah.
Yeah. As Paul says.
Yeah
... under a different price environment, we'll revisit it and have another look. At the end of the day, this is what we think makes the most sense for the corporation in the short to medium term.
No, we appreciate it. It was just trying to understand the benefits offsetting the loss of the ounces over like obviously a 17-year mine life. Yeah.
Yeah.
Okay.
Okay.
Thank you.
Thanks, Tanya.
Thank you.
There are no further questions at this time. Mr. Paul Wright, I turn the call back over to you.
Okay. Thank you, operator, and thank you everybody for attending the call, and we all look forward to listening to George host this call in April. Thanks again. Have a good weekend.
Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.